The need for diversity in the boardroom is well established. A lots of European countries have mandated that at least 40% of the directors of publicly traded companies must be women, and similar laws have been passed in several US states establishing quotas based on gender or race. And without a doubt, these policies have led to substantial progress: for example, a report found that women’s representation on FTSE boards has increased eightfold in the last 25 years, from 5% to 40%. But is it enough to simply change the composition of boards to ensure that diverse perspectives are truly integrated into decision-making?
our new research goes beyond representation to explore how boardroom behaviors change when boards become more diverse and what boards can do to ensure that increased diversity actually has a positive impact on both the board and the organization. organization in general. Specifically, we first analyzed data on the link between director diversity and financial performance for the entire FTSE 350. We then conducted a series of in-depth interviews with nearly a hundred global board directors in which they shared qualitative descriptions of the dynamics of their rooms. of boards and completed a 40-question structured survey designed to quantify the inclusivity and behavioral patterns of their board of directors. Through these analyses, we found that diversity can substantially benefit boards, but only when directors’ input is heard, valued and truly incorporated.
The benefits of going beyond representation
Our research identified two main benefits of inclusion. First, when directors from underrepresented groups are effectively integrated, boards exhibit a more collaborative decision-making process. In particular, we found that boards where female directors were less integrated tended to use more competitive communication styles, often resorting to preemptive voting on issues rather than fully discussing differing viewpoints. This often masked underlying disagreements, increased the chances that certain perspectives would be overlooked, and made these boards overconfident in their decisions. In contrast, boards with more engaged women tended to take the time to come to a common understanding of the issue when disagreement occurred, resulting in more unified decisions where everyone understood what was at stake and was not ignored. no one’s voice
Second, this more inclusive and collaborative decision-making process drives Improved company performance and shareholder relations. Specifically, companies whose boards had well-integrated female directors experienced a 10% higher share return, and their shareholders were 8% less likely to formally dissent from board decisions, than those that diversified without prioritizing true inclusion. , even if the directory only had one woman. .
The challenges of going beyond representation
Of course, going beyond representation to actual inclusion is no mean feat. In our research, we identified several common challenges that prevented women and people of color from joining their boards.
Integration takes time
First, it takes time to build credibility in the boardroom. A board may recruit directors from underrepresented groups, but existing members often don’t immediately feel confident about those new members, and may even see them as disruptive and ineffective. Furthermore, we found that the measurable performance benefits of adding women to the board—increases in metrics like stock price and EBITDA margins, for example—only emerged three to five years after the women joined.
Previous roles convey status
Second, directors of underrepresented groups often have résumés that cause them to be viewed as lower in status than their white male counterparts. Directors with previous experience serving as CEO or CFO of a public company tend to be considered higher in status, and individuals who have held these types of roles are much more likely to be white males. In contrast, directors of underrepresented groups are least likely having served in these roles, and therefore, despite their other experiences, they are often considered of lesser status.
Finally, we found that many new directors who came from underrepresented groups also came from relatively high socioeconomic class backgrounds, making it easier for them to build trust with existing directors. They went to the same colleges, they shared similar hobbies, they played the same sports, so they assimilated relatively easily, because they were entering a culture that was familiar to them. However, directors who came from lower-class backgrounds found it much more difficult to connect with their new peers. They often picked on people because their questions and communication styles made other directors uncomfortable and they generally didn’t understand the “rules of the game”. For example, as one Latina director explained: “For me, board meetings were like watching a foreign movie without subtitles: I had a vague idea of the plot and characters, but I didn’t really understand the implications. There were so many code words, inside jokes, and cultural references that meant nothing to me, since I grew up in a poor ethnic neighborhood. It took me years to truly participate.”
Our research found that while boards have been appointing many more women, those women are almost exclusively white and from upper social classes. These upper-class white female directors tend to bring fairly similar perspectives to existing female directors, meaning that even boards that have become more gender-inclusive often still have a lot of work to do when it comes to recruiting and recruiting. integrate people with multiple disadvantages. To gain access to truly diverse perspectives, it is critical to recognize the importance of social class and other intersectional identities beyond gender and race.
What it takes to go beyond representation
Despite the challenges, some of the boards in our study were able to successfully recruit, retain, and engage a diverse group of directors. These boards adopted many of the following strategies:
Select a president who is a good listener
Throughout our interviews, we consistently heard that the most important ingredient for a diverse and inclusive board of directors was a chairman who was considered a good listener. As a board diversifies, it becomes even more critical that the chairman actively seek out and understand the perspectives of different directors, and help the entire board appreciate the contributions of All their peers. “The best board chairmen I’ve ever observed,” noted one director, “go the extra mile to listen carefully to people’s real ideas and aren’t fooled if people don’t use the buzzwords or phrases ‘in my experience ‘ which tend to signal credibility.”
Collect and learn from diversity and inclusion data
True inclusion is impossible without explicit coordination around measurable goals. In our study, we found that the most inclusive boards were those that tracked and reported metrics not only on the number of female and minority directors, but also on socioeconomic class and intersectional identities. And of course, beyond tracking representation, the most effective boards used frequent surveys and interviews to measure qualitative indicators of inclusion. It is particularly important to collect information on patterns of inclusion over time, as the positive impact of diversity on company performance may take years to manifest, but evidence of short-term progress in diversity and inclusion can help. managers to stay motivated and confident that they are moving in the right direction.
Interact with various candidates and trainees
Moving from representation to real inclusion starts with genuine engagement and connection with people from different backgrounds, and this usually doesn’t happen without proactive effort. The successful boards in our study explicitly asked existing directors to identify and mentor one or two potential board executives of a different ethnicity or lower social class than themselves. As one director observed, “even if those candidates are not appointed, it effectively diversifies the network of existing directors and helps them understand the barriers faced by other candidates with similar backgrounds.”
Boards that became more collaborative and exhibited the strongest shareholder relationships after increasing diversity generally had strong subcommittees with explicit decision-making power in certain clearly defined domains. These committees offer new directors the opportunity to better understand board policy, culture and processes, giving them the tools they need to be effective in dealing with the board as a whole. One director told us: “I found my ‘voice’ on the audit committee. I felt like an impostor in the great [main board] meetings, but I could definitely hold my own when it came to numbers. So I figured out how to craft a logic that would resonate with my quantum peers, and over time I used that approach to gain much more clout with the larger group.”
Culture cannot be an afterthought. To that end, boards should proactively charge their nominating committee with the responsibility of creating an inclusive board culture or create an independent committee for this task. Board members should also spend time together outside of meetings to build trust, forge lasting personal relationships, and better understand the value that other directors’ perspectives bring. And remember: the more dimensions a director differs from their “typical” peers on a board, the more effort it takes to build mutual trust and understanding. As the company secretary of a large multinational company explained to us, when managers take the time to get to know each other, it is easier for them to challenge each other and ask important questions, and therefore it is more likely that everyone’s voice will be heard. heard and. The goal here is not for the various board members to assimilate into the existing culture. Rather, the culture must change to embrace the new perspectives and ways of operating that diverse members bring to the table.
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Ultimately, representation is important, but it is not enough to make significant progress on its own. To make the most of a diverse board, it’s critical to not just recruit a few women or people of color, but to take an intersectional approach to diversity, challenge assumptions about status and experience, and invest in building a culture of true inclusion.